The Rachel's Enterprises Solutions had the following balance sheet as of December 31, 2020. The transactions for
Question:
The Rachel's Enterprises Solutions had the following balance sheet as of December 31, 2020. The transactions for the first three months of 2021 are also presented along with other information about specific accounts.
Rachel's Enterprises Solutions Incorporated
Balance Sheet
December 31, 2020
| ASSETS | LIABILITIES | |||
| Cash | $ 37,000 | Accounts Payable | $ 40,000 | |
| Marketable Securities | 10,000 | Wages Payable | 10,800 | |
| Accounts Receivable | 63,000 | Taxes Payable | 7,200 | |
| Uncollectible Accounts | -2,000 | Short-Term Note Payable | 30,000 | |
| Inventory | 74,000 | Interest Payable | 2000 | |
| Supplies | 4,000 | Unearned Revenue | 20,000 | |
| Prepaid Insurance | 7,500 | Unearned Consulting Rev. | 5,000 | |
| Total Current Assets | $193,500 | Total Current Liabilities | $ 115,000 | |
| Land | $111,500 | Long-Term Notes Payable | $ 50,000 | |
| Equipment | 217,000 | Bonds Payable | 100,000 | |
| Accumulated Depreciation | -97,000 | Mortgage Payable | 350,000 | |
| Building | 590,000 | Total Long-Term Liabilities | $500,000 | |
| Accumulated Depreciation | -110,000 | |||
| Intangible Assets | 60,000 | STOCKHOLDER EQUITY | ||
| Total Long-Term Assets | $771,150 | Capital Stock | $100,000 | |
| Paid in Capital | 140,000 | |||
| Retained Earnings | 110,000 | |||
| Total Stockholders Equity | $350,000 | |||
| Total Assets | $965,000 | Total Liabilities & Equity | $965,000 |
Additional Information
Accounts Receivable
The following table indicates the historical breakout of accounts receivable
| Days | Current | 30 to 60 | 60 to 90 | Over 90 |
| Percent of Balance | 50% | 30% | 15% | 5% |
| Percent Collectible | 95% | 90% | 80% | 60% |
The company uses the gross method of recording all sales on accounts.
Marketable Securities
The interest rate earned on marketable securities is 7.0%.
Inventory
In 202x, the company had used the gross method to record inventory purchases on account.
Prepaid Insurance
A three-year insurance policy in the amount of $9,000 was purchased on July 1, 2020.
Equipment
Equipment is depreciated at an average amount of $3,500 per month.
Building
The current building was purchased on January 1, ten years ago and has an expected 40-year life at which time its salvage value will be $40,000.
Intangible Assets
Intangible assets were initially valued at $60,000 and are being depreciated over 30 years at $2,000 per year.
Short-Term Notes Payable
The one-year short-term note payable is due on March 1, 2021. The interest rate is 8.0% which is payable at maturity.
Long-Term Notes Payable
The long-term notes payable are due in ten years. The interest rate on the notes is 5.0%.
Bonds Payable
The bonds payable mature in twenty years. The interest rate on the bonds is 5.0%.
Mortgage Payable
The following amortization schedule can be used for the January, 2021 mortgage payment on the 4.0%, 30- year mortgage.
| Month | Payment | Interest | Principal | Balance |
| January | $3,500 | $2,063 | $1,437 |
|
| February | $3,500 | $2,063 | $1,437 | $317,126 |
| March | $3,500 | $2,063 | $1,437 | $315,689 |
Capital Stock
The capital stock is common stock at $10 par value with 50,000 shares authorized, and 10,000 shares issued and outstanding.
Journal Entries
- Rachel invested $40,000 cash into the business by purchasing capital stock at $10.00 par value.
- Jan 2 The Company borrowed $60,000 on a short-term 90 day, 4.0% note payable.
- Jan 3 The Company paid $30,000 in advance for the 12 month rental of a warehouse.
- Jan 5 Rachel's Enterprises Board of Directors declared a dividend of $.75 cents per share payable on February 10, 2021 to all shareholders of record on January 20, 2021.
- Jan 6 The amount in wages payable and taxes payable was paid in full.
- Jan 8 The Company paid a total of $30,000 on accounts payable less the 2% in purchase discounts for early payment.
- Jan 15 Cash sales for two weeks equaled $38,000. The cost of inventory sold equaled $16,000.
- Jan 18 Consulting services revenue during the first two week was $10,000 cash. Please use Consulting Service Revenue.
- Jan 20 Supplies in the amount of $4,500 were purchased for cash.
(10) Jan 21 A customer who owed $25,000 on an account receivable, agreed to sign a 60-day note receivable with an interest rate of 6.0%. The interest earned on the note will be paid at the maturity date of the note receivable.
(11) Jan 29 The balance of $10,000 in accounts payable was paid.
(12) Jan 30 The Company purchased $60,000 of inventory on account with the terms 2/10, net 30.
(13) Jan 30 The Company paid freight charges of $1,800 on the inventory purchase.
(14) Jan 31 Cash sales for two weeks equaled $28,000. The cost of inventory sold equaled $13,000.
(15) Jan 31 Sales on account for the month of January totaled $62,000 with the terms 2/10, net 30. The cost of inventory sold equaled $29,000.
(16) Jan 31 The unearned revenue represented the rental of special equipment that was used by another company on weekends. $4,000 of the revenue was earned in January.
(17) Jan 31 Collected cash of $49,000 from the accounts receivable, plus there was a total sales discount of $1,000 for the payment of receivables within the ten day discount period.
(18) Jan 31 Salary expenses in the amount of $12,000 and tax expenses in the amount of $5,000 were paid.
(19) Jan 31 The Company paid a repair bill of $6,000 was paid.
(20) Jan 31 A bill in the amount of $2,500 for advertising expenses incurred during the month of January was received.
(21) Jan 31 The monthly payment for January of the mortgage payable was made.
(22) Jan 31 Consulting services on account for the month were $15,000. Included in this amount was $5,000 advanced payment previously received in the unearned consulting revenue account.
(23) Jan 31 In order to make a sale the company paid $1,200 to have goods shipped to a customer.
(24) Feb 1 The Company made a new issue of 5,000 shares of $10.00 par value common stock for cash. The market price of the stock was $30 per share.
(25) Feb 2 A petty cash fund in the amount of $800 was established.
(26) Feb 3 The Company bought back 1,000 shares of its own common stock for $20 per share and reports the purchase as treasury stock.
(27) Feb 8 The purchase of inventory on account on Jan 30th which was reported at the gross amount was paid in full less the discount.
(28) Feb 10 The dividend declared on January 5th was paid.
(29) Feb 15 Cash sales for two weeks equaled $21,000. The cost of inventory sold equaled $9,500.
(30) Feb 15 Consulting services for cash for two weeks was $20,000.
(31) Feb 20 The Company purchases $31,000 of inventory on account with the terms 2/10, net 30.
(32) Feb 20 The Company paid freight charges of $900 for the inventory purchase.
(33) Feb 27 The Company paid an advertising bill for $6,500 which included the February advertising expense of $4,000 plus the balance due from January.
(34) Feb 28 Cash sales for two weeks equaled $32,000. The cost of inventory sold equaled $15,000.
(35) Feb 28 Consulting services for the on credit for the two weeks totaled $22,000.
(36) Feb 28 The monthly payment for February of the mortgage payable was made.
(37) Feb 28 The Company collected cash on the accounts receivables for a payment of $70,000 less a total sales discount of $1,400 for the payment of receivables within the ten day discount period.
(38) Feb 28 Salary expenses in the amount of $18,000 and tax expenses in the amount of $6,000 were paid.
(39) Feb 28 The Company paid a property tax bill of $4,100.
(40) Feb 28 Sales on account for the month of February totaled $75,000 with the terms 2/10, net 30. The cost of inventory sold equaled $33,800.
(41) Feb 28 A customer complained that some of the goods they received were damaged. So Rachel's gave them an allowance of $1,700 to keep the customer satisfied.
(42) Mar 1 The short-term note payable of $30,000 that was due on March 1st plus all appropriate interest was paid.
(43) Mar 3 The amount of the petty cash fund was increased by $700.
(44) Mar 10 Supplies in the amount of $3,900 were purchased on account.
(45) Mar 15 Cash sales for two weeks equaled $23,000. The cost of inventory sold equaled $11,600.
(46) Mar 15 The consulting service revenue for cash for two weeks totaled $17,000.
(47) Mar 20 The Company reissued 300 shares of its own treasury stock for $30 per share.
(48) Mar 21 The note receivable from January 21st had been paid in full plus interest.
(49) Mar 25 The Company purchased $51,000 of inventory on account using the gross method with the terms 2/10, net 30.
(50) Mar 28 The purchase of inventory on account on February 20th was paid in full.
(51) Mar 29 The petty cash fund had $400 in cash and receipts in total amounts for the following expense categories: entertainment-$250, travel- $265, miscellaneous-$100, postage $240, and supplies $190. The petty cash fund was replenished.
(52) Mar 30 Cash sales for two weeks equaled $24,000. The cost of inventory sold equaled $11,500.
(53) Mar 30 The unearned revenue represented the rental of special equipment that was used by another company on weekends. $16,000 of the revenue was earned in March.
(54) Mar 31 Sales on account for the month of March totaled $78,000 with the terms 2/10, net 30. The cost of inventory sold equaled $37,000.
(55) Mar 31 The Company paid legal fees of $1,500.
(56) Mar 31 Collected $75,000 from the accounts receivable less a total sales discount of $1,500 for the payment of receivables within the ten day discount period.
(57) Mar 31 Consulting revenue on credit for the month totaled $27,000.
(58) Mar 31 Rachel's returned $4,000 of inventory that we purchased earlier in the month.
(59) Mar 31 A warehouse building was acquired for $325,000. Closing costs on the acquisition equaled $10,500, and there were costs of $15,800 to get the building into an operational condition to be used by the company. The company paid $75,000 in cash as a down payment with the balance due being added to the mortgage payable account.
(60) Mar 31 The utility bill of $7,500 for the quarter was paid.
(61) Mar 31 The Company repaid the 90 day note payable from January 2nd in full plus interest.
(62) Mar 31 A customer sent an advance payment of $15,000 for the use of special equipment in April and May.
(63) Mar 31 A customer returned $5,000 of merchandise in good condition. The cost of the merchandise as $2,200.
(64) Mar 31 The Company reimbursed management for mileage for the quarter a total of $2,500. Please use mileage expense account.
(65) Mar 31 Equipment with a historical cost of $20,000 and an accumulated depreciation of $6,000 was sold for $16,000 cash. (Hint-first update the depreciation for the 3 months-January through March which was $500)
(66) Mar 31 Equipment with a historical cost of $20,000 and an accumulated depreciation of $18,000 was disposed of with an additional disposal cost of $1,300. (Hint-first update the depreciation for the 3 months-January through March which was $500.)
(67) Mar 31 The monthly payment for March of the mortgage payable was made.
Record these adjusting entries for the quarter so Financial Statements are correct!
A1-Mar 31 The equipment depreciation entry for the three months of 202x was completed.
A2 Mar 31 The depreciation entry for the building for the months of January, February, and March was entered.
A3 Mar 31 The amortization of intangible assets for the three months of 202x was completed.
A4 Mar 31 The bad debt expense based on 1.0% of credit sales for the quarter was recorded.
A5 Mar 31 Salary expenses incurred during the month of March but not yet paid equaled $15,500
A6 Mar 31 Tax expenses incurred during the month of March but not yet paid equaled $8,900.
A7 Mar 31 A physical inventory of supplies indicated a total amount of $5,000 of supplies still on hand. A journal entry was completed for the supplies used during the quarter.
A8 Mar 31 The amount of rent expense for the warehouse for the first three months of 2021 was recognized.
A9 Mar 31 The Company provided services to a customer in the amount of $14,000 during March but a bill has not been sent.
A10 Mar 31 The amount of insurance expense for the first three months of 2021 was recognized.
A11 Mar 31 The amount of interest earned on marketable securities for the three months of 2021 was recognized.
A12 Mar 31 The amount of interest expense for the total long-term notes payable for the first three months of 2021 was recognized.
A13 Mar 31 The amount of interest expense for the bonds payable for the three months of 2021 was recognized.
Required
2. Develop a trial balance for Rachel's Enterprise Solutions as of March 31, 2021.
Journal Entries
JOURNAL ENTRIES
DATE ACCOUNT DEBIT CREDIT
1 1-Jan Cash 40,000.00
Capital Stock 40,000.00
To record the investment of Rachel of 4,000 shares at 10 par value
2 2-Jan Cash 60,000.00
Short-Term Note Payable 60,000.00
To record the short term 90 day at 4% note payable
3 3-Jan Prepaid Rent 30,000.00
Cash 30,000.00
To record the payment of rent for 12 months
4 5-Jan Retained Earnings 10,500.00
Dividends Payable 10,500.00
To record the dividend declaration of $0.75 per share
5 6-Jan Wages Payable 10,800.00
Taxes Payable 7,200.00
Cash 18,000.00
To record full payment on wages and taxes payable
6 8-Jan Accounts Payable 30,000.00
Purchase Discount 600.00
Cash 29,400.00
To record the payment of purchases
7 15-Jan Cash 38,000.00
Sales 38,000.00
To record the cash sales
15-Jan Cost of Goods Sold 16,000.00
Inventory 16,000.00
To record the cost of inventory sold
8 18-Jan Cash 10,000.00
Consulting Service Revenue 10,000.00
To record the receipt of cash from Consulting Service
9 20-Jan Supplies 4,500.00
Cash 4,500.00
To record the purchase of supplies
10 21-Jan Notes Receivable 25,000.00
Accounts Receivable 25,000.00
To record the 60 days note receivable at 6% in exchange of accounts receivable
11 29-Jan Accounts Payable 10,000.00
Cash 10,000.00
To record the payment of accounts receivable
12 30-Jan Purchases 60,000.00
Accounts Payable 60,000.00
To record the purchases on account 2/10, net 30
13 30-Jan Freight In 1,800.00
Cash 1,800.00
To record the freight in from inventory purchases
14 31-Jan Cash 28,000.00
Sales 28,000.00
To record the cash sales
31-Jan Cost of Goods Sold 13,000.00
Inventory 13,000.00
To record the cost of inventory sold
15 31-Jan Accounts Receivable 62,000.00
Sales 62,000.00
To record the sales on account, 2/10 net 30
31-Jan Cost of Goods Sold 29,000.00
Inventory 29,000.00
To record the cost of inventory sold
16 31-Jan Unearned Revenue 4,000.00
Rent Revenue 4,000.00
To record the rental revenue from the rent of special equipment
17 31-Jan Cash 49,000.00
Sales discount 1,000.00
Accounts Receivable 50,000.00
To record the payment on accounts receivable
18 31-Jan Salary Expense 12,000.00
Taxes Expense 5,000.00
Cash 17,000.00
To record the payment of Salary and Taxes
19 31-Jan Repair Expenses 6,000.00
Cash 6,000.00
To record the payment for repairs
20 31-Jan Advertising Expense 2,500.00
Accrued Advertising Expense 2,500.00
To record the advertising expense for the month of January
21 31-Jan Mortgage Payable 1,437.00
Interest Expense 2,063.00
Cash 3,500.00
To record the payment of interest and principal of mortgage payable
22 31-Jan Unearned Consulting Revenue 5,000.00
Accounts Receivable 10,000.00
Consulting Service Revenue 15,000.00
To record the consulting revenue on account
23 31-Jan Freight out 1,200.00
Cash 1,200.00
To record the payment for the shipment of goods to customers
24 1-Feb Cash 150,000.00
Paid In Capital 100,000.00
Capital Stock 50,000.00
To record the issuance of 5,000 shares
25 2-Feb Petty Cash Fund 800.00
Cash 800.00
To record the establishment of petty cash fund
26 3-Feb Treasury Stock 20,000.00
Cash 20,000.00
To record the acquisition of treasury shares
27 8-Feb Accounts Payable 60,000.00
Purchase Discount 1,200.00
Cash 58,800.00
To record the payment of purchases on account on 30 January
28 10-Feb Dividends Payable 10,500.00
Cash 10,500.00
To record the payment of dividends
29 15-Feb Cash 21,000.00
Sales 21,000.00
To record the cash sales
15-Feb Cost of Goods Sold 9,500.00
Inventory 9,500.00
To record the cost of inventory sold
30 15-Feb Cash 20,000.00
Consulting Service Revenue 20,000.00
To record the receipt of cash from consulting revenue
31 20-Feb Purchases 31,000.00
Accounts Payable 31,000.00
To record the purchases on account 2/10, net 30
32 20-Feb Freight In 900.00
Cash 900.00
To record the payment of freight in
33 27-Feb Advertsing Expense 4,000.00
Accrued Advertising Expense 2,500.00
Cash 6,500.00
To record the payment for advertising
34 28-Feb Cash 32,000.00
Sales 32,000.00
To record the cash sales
28-Feb Cost of Goods Sold 15,000.00
Inventory 15,000.00
To record the cost of inventory sold
35 28-Feb Accounts Receivable 22,000.00
Consulting Revenue 22,000.00
To record the consulting revenue on account
36 28-Feb Mortgage Payable 1,437.00
Interest Expense 2,063.00
Cash 3,500.00
To record the payment of interest and principal of mortgage payable
37 28-Feb Cash 68,600.00
Sales discount 1,400.00
Accounts Receivable 70,000.00
To record the payment on accounts receivable
38 28-Feb Salary Expense 18,000.00
Taxes Expense 6,000.00
Cash 24,000.00
To record the payment of Salary and Taxes
39 28-Feb Taxes Expense 4,100.00
Cash 4,100.00
To record the payment of property tax bill
40 28-Feb Accounts Receivable 75,000.00
Sales 75,000.00
To record the sales on account, 2/10 net 30
28-Feb Cost of Goods Sold 33,800.00
Inventory 33,800.00
To record the cost of inventory sold
41 28-Feb Sales Allowances 1,700.00
Cash 1,700.00
To record the sale allowance for the damaged goods
42 1-Mar Short Term Note Payable 30,000.00
Interest Expense 2,400.00
Cash 32,400.00
To record the full payment of 8% short term note payable
43 3-Mar Petty Cash Fund 700.00
Cash 700.00
To record the increase in Petty Cash Fund
44 10-Mar Supplies 3,900.00
Accounts Payable 3,900.00
To record the cost of inventory sold
45 15-Mar Cash 23,000.00
Sales 23,000.00
To record the cash sales
Cost of Goods Sold 11,600.00
Inventory 11,600.00
To record the cost of inventory sold
46 15-Mar Cash 17,000.00
Consulting Service Revenue 17,000.00
To record the receipt of cash from consulting revenue
47 20-Mar Cash 9,000.00
Treasury Stock 6,000.00
Paid in Capital - Treasury Stock 3,000.00
To record the reissuance of treasury shares at 30
48 21-Mar Cash 25,250.00
Interest Income 250.00
Notes Receivable 25,000.00
To record the payment of 6% 60 days Notes Receivable
49 25-Mar Purchases 51,000.00
Accounts Payable 51,000.00
To record the purchases on account 2/10, net 30
50 28-Mar Accounts Payable 31,000.00
Cash 31,000.00
To record the full payment on the purchases on account on 20 February
51 29-Mar Entertainment Expense 250.00
Travel Expense 265.00
Miscellaneous Expense 100.00
Postage Expense 240.00
Supplies Expense 190.00
Cash Short or Over 55.00
Cash 1,100.00
To replenish the petty cash fund and record the cash shortage
52 30-Mar Cash 24,000.00
Sales 24,000.00
To record the cash sales
Cost of Goods Sold 11,500.00
Inventory 11,500.00
To record the cost of inventory sold
53 30-Mar Unearned Revenue 16,000.00
Rent Revenue 16,000.00
To record the rental revenue from the rent of special equipment
54 31-Mar Accounts Receivable 78,000.00
Sales 78,000.00
To record the sales on account, 2/10 net 30
Cost of Goods Sold 37,000.00
Inventory 37,000.00
To record the cost of inventory sold
55 31-Mar Legal Fees 1,500.00
Cash 1,500.00
To record the payment for legal expenses
56 31-Mar Cash 73,500.00
Sales discount 1,500.00
Accounts Receivable 75,000.00
To record the payment on accounts receivable
57 31-Mar Accounts Receivable 27,000.00
Consulting Service Revenue 27,000.00
To record the consulting revenue on account
58 31-Mar Accounts Payable 4,000.00
Purchase Return 4,000.00
To record the return of purchases
59 31-Mar Building 351,300.00
Cash 75,000.00
Mortgage Payable 276,300.00
To record the acquisition of building
60 31-Mar Utilities Expense 7,500.00
Cash 7,500.00
To record the payment for utilities
61 31-Mar Note Payable 60,000.00
Interest Expense 600.00
Cash 60,600.00
To record the repayment of 4% 90 day note payable
62 31-Mar Cash 15,000.00
Unearned Revenue 15,000.00
To record the payment for the rental for special equipment for April and May
63 31-Mar Sales 5,000.00
Cash 5,000.00
To record the returned merchandise
Inventory 2,200.00
Cost of Goods Sold 2,200.00
To record the cost of returned merchandise
64 31-Mar Mileage Expense 2,500.00
Cash 2,500.00
To record the reimbursement of mileage expenses
65 31-Mar Cash 16,000.00
Accumulated Depreciation 6,500.00
Equipment 20,000.00
Gain on sale of Equipment 2,500.00
To record the sale of equipment
66 31-Mar Accumulated Depreciation 18,500.00
Loss on disposal 3,000.00
Equipment 20,000.00
Cash 1,500.00
To record the disposal of Equipment and additional cost of disposal
67 31-Mar Mortgage Payable 1,437.00
Interest Expense 2,063.00
Cash 3,500.00
To record the payment of interest and principal of mortgage payable
ADJUSTING ENTRIES
A1 31-Mar Depreciation Expense 10,500.00
Accumulated Depreciation 10,500.00
To record the depreciation expense for equipment
A2 31-Mar Depreciation Expense 3,438
Accumulated Depreciation 3,438
To record the depreciation expense for building
A3 31-Mar Amortization Expense 500.00
Intangible Asset 500.00
to record the amortization expense of Intangible Asset
A4 31-Mar Bad Debts Expense 2,150.00
Uncollectible Accounts 2,150.00
To record the recognition of Bad Debts
A5 31-Mar Salary Expense 15,500.00
Accrued Salaries Expense 15,500.00
To record the accrued salaries
A6 31-Mar Taxes Expense 8,900.00
Accrued Taxes Expense 8,900.00
To record the accrued taxes
A7 31-Mar Supplies Expense 7,400.00
Suplies 7,400.00
To record the supplies expense
A8 31-Mar Rent Expense 7,500.00
Prepaid Rent 7,500.00
To record the expired portion of prepaid rent
A9 31-Mar Accounts Receivable 14,000.00
Consulting Service Revenue 14,000.00
to record the service earned
A10 31-Mar Insurance Expense 2,250.00
Prepaid Insurance 2,250.00
To record the recognition of Bad Debts
A11 31-Mar Accrued Interest Income 175.00
Interest Income 175.00
To record the interest income from marketable securities
A12 31-Mar Interest Expense 625.00
Accrued Interest Expense 625.00
To record the interest expense from long term notes payable
A13 31-Mar Interest Expense 1,250.00
Accrued Interest Expense 1,250.00
To record the interest expense from bonds payable
Expert Answer:
